Ethics and governance in the European Financial centers

In context where the risk of terrorist actions has dramatically increased due to the war in Iraq and Lebanon (and the project with liquid bombs in London in August reminds us that this is not a theory and that terrorists are imaginative), one cannot accept any laxism from the professionals of financial centers in the implementation of AML/CFT international programs.

Official communication

Statement of Luc Frieden at the IMF Boards of Governors in 2002 : "Personally, I have no doubt that my country can lead by example in promoting good governance, in fighting against the financing of terrorism and against money laundering, and in actively promoting development policies."

Website of the government last updated on 21/08/03 : “Since the internationalization of its money market, the Grand Duchy of Luxembourg has always been willing to prevent that the financial institutions and circuits are used wrongly for terrorist, criminal or illegal activities. Luxembourg thus always took care to close the access of its financial sector of such actors and activities, to block their operations, to freeze and confiscate their assets, to stop and condemn those that make illegal actions and those that help them.”

Website of Luxembourg For Finances : “Luxembourg is at the Forefront of the Fight Against Financial Crime (...) Luxembourg is a leader in all of these areas, and the Luxembourg Financial Centre guards its reputation and the trust that investors bestow as extremely valuable assets (...) In the matter of the control of the financing of terrorism, the supervisory and judicial authorities impose a requirement for ongoing verification of the lists of terrorists against customer databases of the credit establishments and financial sector professionals.”

Report from ABBL/Chambre de Commerce at the time of the debate on the law of November 12, 2004 (Report of September 16, 2003, p. 11): “The initiatives taken after the attacks of 2001 were appreciated by foreign authorities, in particular American. There is no doubt that the personal commitment of the persons responsible for anti money laundering, under the authority of the Prosecuting authorities, also contributed to the image of the financial center. That does not prevent that it is necessary to find a constructive alternative to the institutional drift which is taking shape.”

Observations

Report from Prosecuting authorities of Luxembourg at the time of the debate on the law of November 12, 2004 (report of December 15, 2003, p. 25): “The behaviours of many companies in after-September 2001 show however that the rigour on the level of the sanction of the violations of the professional obligations must absolutely be maintained. For instance one can raise that many credit institutions put from 2 to 3 months to carry out the checks compared to the names of supposed terrorists communicated by circular, that several establishments spent almost 2 years to set up systems of control of the somewhat powerful communicated names and that a PSF "had forgotten" to carry out a checking of names of supposed terrorists during 1 year and half. A credit institution denounced a suspect case of financing of terrorism announced by circular only after several months while waiting for that it was not any more itself in the financial risk. For 5 of the 78 circulars that were released as regards fight against terrorism and its financing, prosecuting authorities had required of the professionals to not only appear for the case where they would have a suspect customer compared to the list, but also to let them know if no link were discovered. Only 50% of the professionals answered this request. These cases of figure arise still today where one is with the 24ième circular of the kind what allows the question if the professionals carried out the least checking the 23 previous times. "

Report of the prosecuting autorities (CRF) for 2003-2004 : "May 11, 2004, a commercial bank and a central bank from a country of the Middle-East were put on the OFAC list by the President of the United States. The same day, the aforementioned banks were indicated by Treasury Department of the USA in accordance with section 311 of "Patriot Act" as being implied in the money bleaching in general and the financing of terrorism, in particular of Usama Bin Laden, in particular. Treasury Department of the USA by press releases diffuses these measurements very widely. At this time, no establishment of the place operates a declaration of suspect operation. June 3, 2004, at the moment when the commercial bank herebefore wants to withdraw its assets (USD 339.128.770!) near a credit institution of the place, this one confirms the bond realising declaration of suspicion while conceding that it was with the current of the suspicions formulated by Treasury Department since May 11, 2004. The subsequent investigation revealed that still 5 other banks of the place had a link with the aforementioned suspect banks at the time when the suspicion was made public by the American authorities. None proceeded to a spontaneous declaration. The assets deposited by the two suspect banks on the place had largely exceeded USD 600.000.000." (report from the CRF for 2003-2004 published in November 2005, page 24)

The prosecuting authorities (CRF) and the CSSF recognize that only 50% of professionals are actually concerned by AML/CFT by addressing declarations of suspicion. It is corroborated in their last reports
- report from the CRF for 2003-2004 published in November 2005, page 9;
- reports from the CSSF for year 2004 pages 206-207 and year 2005 pages 156-158

The CRF underlined in its last report that the provisions of law of November 12, 2004 may be a problem for CFT because assets may be blocked for only three month and there is no other legal alternative in Luxembourg to block dubious assets when the individuals that are involved are not targeted by decisions either of the United Nations or of the European community (report from the CRF for 2003-2004 published in November 2005, pages 13-14)

Professionals recognise that "It is essential to remember that any inculpation - that it is for employees or the leaders within the meaning of article 7 of the law on the financial sector - constitutes for concerned people a professional death. That is the reason why, as of today, the payments for breach in the professional requirements remain uncontested by the professionals of the financial sector." (Report from ABBL/Chambre de Commerce at the time of the debate on the law of November 12, 2004 - Report of September 16, 2003, p. 10). This means in practice that those who do not have a proper business conduct and do not abide by the professional requirements, especially AML/CFT, are not put out of business their honorability being saved. The criterion of "honorability" stated in the law of 1993 is not serious (See article Irreprocheable activity : Luxembourg v. Switzerland)



Comment

In a nutshell, as far as terrorism is concerned, despite existing texts there is a high level of risks in Luxembourg due to
- Flawed decision-makers (government or professional bodies) mind-sets that throw off a financial center's perception of reality,
- the lack of actual involvement of many professionals in AML/CFT and the fact they are not put out of business: yes there are internal auditors, compliance officers and/or risk managers but there is an official state of mind of laxism and permissiveness because of bogus pragmatism (see article Clear and pragmatic legal rules),
- some limitations in the existing law of November 12, 2004.

The dysfunctions are all the more serious and not acceptable as Luxembourg is a small country (2500 Km2), which makes controls easier to implement than in larger countries.



Some of the original texts in French

Site du gouvernement actualisé au 21/08/03 : "Depuis l'internationalisation de sa place financière, le Grand-Duché de Luxembourg a toujours cherché à empêcher que les institutions et circuits financiers soient utilisés abusivement pour des activités terroristes, criminelles ou illégales. Le Luxembourg a ainsi toujours veillé à fermer l'accès de son secteur financier à de tels acteurs et activités, à bloquer leurs opérations, à geler et à confisquer leurs avoirs, à arrêter et à condamner ceux qui commettent des actes illégaux et ceux qui les aident."

Site Luxembourg For Finance : "Le Luxembourg est à la pointe de la lutte contre la criminalité financière (...) Le Luxembourg est un pionnier dans tous ces domaines et la place financière luxembourgeoise protège jalousement sa réputation et la confiance que lui accordent les investisseurs car ce sont des atouts extrêmement précieux (...) Concernant le contrôle du financement du terrorisme, les autorités de tutelle et judiciaires imposent une obligation de vérification régulière des bases de données de clientèle des établissements de crédit et des professionnels du secteur financier par rapport aux listes de terroristes."

Avis ABBL/Chambre de Commerce lors du débat sur la loi du 12 novembre 2004 (avis du 16/09/03, p. 11): "Les initiatives prises après les attentats de 2001 ont valu au Grand-Duché le respect des autorités étrangères, notamment américaines. Il n’y a pas de doute que l’engagement personnel des responsables du service anti-blanchiment, sous l’autorité du procureur d’Etat, ont aussi rendu service à l’image de la Place financière. Cela n’empêche qu’il faut trouver une alternative constructive à la dérive institutionnelle qui se dessine "

Parquet de Luxembourg lors du débat sur la loi du 12 novembre (avis du 15/12/03, p. 25) : " Les comportements de nombreux établissements dans l’après-septembre 2001 montrent cependant que la rigueur au niveau de la sanction des violations des obligations professionnelles doit absolument être maintenue. A titre d’exemple on peut relever que de nombreux établissements de crédit ont mis de 2 à 3 mois pour procéder aux vérifications par rapport aux noms de terroristes présumés communiqués par circulaire, que plusieurs établissements ont mis presque 2 ans pour mettre en place des systèmes de contrôle des noms communiqués quelque peu performants et qu’un PSF avait "oublié" de procéder à une vérification de noms de terroristes présumés pendant 1 an et demi. Un établissement de crédit n’a dénoncé un cas suspect de financement de terrorisme signalé par circulaire qu’après plusieurs mois en attendant qu’il n’était plus lui-même dans le risque financier. Pour 5 des 78 circulaires émises en matière de lutte contre le terrorisme et son financement, le parquet pour des raisons inhérentes à l’enquête avait demandé aux professionnels non seulement de se manifester pour le cas où ils auraient un client suspect par rapport à la liste, mais également de lui faire savoir si aucun lien n’a été découvert. Seulement 50% des professionnels ont répondu à cette demande. Ces cas de figure se présentent encore aujourd’hui où on est à la 24ième circulaire du genre ce qui permet la question si les professionnels ont effectué la moindre vérification les 23 précédentes fois."

CRF dans le rapport 2003-2004 : "Le 11 mai 2004, une banque commerciale et une banque centrale d’un pays du Moyen Orient ont été mises sur la liste OFAC par décret Présidentiel des USA. Le même jour, lesdites banques ont été désignées par le Treasury Department des USA conformément à la section 311 du « Patriot Act » comme étant impliquées dans le blanchiment d’argent en général et le financement du terrorisme, notamment d’Usama Bin Laden, en particulier. Le Treasury Department des USA par des communiqués de presse diffuse très largement ces mesures. A ce moment, aucun établissement de la place n’opère une déclaration d’opération suspecte. Le 3 juin 2004, au moment où la banque commerciale ci-avant veut retirer ses avoirs (USD 339.128.770 !) auprès d’un établissement de crédit de la place, celui-ci confirme le lien moyennant déclaration de soupçon tout en concédant qu’il était au courant des soupçons formulés par le Treasury Department depuis le 11 mai 2004. L’enquête subséquente a révélé qu’encore 5 autres banques de la place avaient un lien avec les prédites banques suspectes au moment où le soupçon a été rendu public par les autorités américaines. Aucune n’a procédé à une déclaration spontanée. Les avoirs déposés par les deux banques suspectes sur la place avaient largement dépassé les USD 600.000.000."

Avis ABBL/Chambre de Commerce lors du débat sur la loi du 12 novembre 2004 (avis du 16/09/03, p. 10) : "Il est indispensable de se rappeler que toute inculpation – que ce soit pour des employés ou pour les dirigeants au sens de l’article 7 de la loi sur le secteur financier – constitue pour les concernés une mort professionnelle certaine. C’est d’ailleurs la raison pour laquelle, dès aujourd’hui, des ordonnances de paiement pour violation des obligations professionnelles restent incontestées par les professionnels du secteur financier"

Full reports in French
Last report from the CRF : 2003-2004
Parliamentary file relating to law of November 12, 2004

The Jersey Financial Services Commission recently added the Cayman Islands to its list of countries and territories considered to have an equivalent anti-money laundering framework.

The move is being seen by the Cayman Islands Monetary Authority as being of significant benefit to Cayman-based financial institutions and their clients which do business with financial institutions in Jersey.

The recognition allows Jersey's customer identification procedures to be satisfied if the client has met Cayman's customer identification requirements. This potentially saves time and resources that would otherwise have to be spent processing and supplying duplicate know-your-customer documentation to Jersey.

Jersey's anti-money laundering legislation and guidance provide in certain circumstances for a financial services business to place reliance on another institution to conduct customer identification procedures, where the institution is subject to obligations equivalent to those in Jersey, and where an overseas regulatory authority supervises the institution.

The listing of Cayman comes after months of discussion between the Cayman Islands Monetary Authority (CIMA) and its Jersey counterpart, as well as CIMA's lobbying at international forums such as the Overseas Group of Banking Supervisors for reciprocal recognition of equivalent anti-money laundering/counter terrorist financing (AML/CFT) frameworks among jurisdictions.

"We are pleased that Jersey has now added us to its list. The issue of equivalency listings relating to AML/CFT regimes is something CIMA has been concerned about for some time," commented CIMA Managing Director Cindy Scotland.

"We continue to engage in bilateral negotiations with regulators in countries where Cayman is not currently listed as having equivalent AML/CFT regimes," she added.

Mrs Scotland further explained that collaboration between CIMA and the Jersey Financial Services Commission was being further extended through a memorandum of understanding on information exchange and cooperation, which has been approved by the Cabinet and is now being finalised


Source : Amanda Banks, Tax-News.com, London 16 August 2006

As regards money-laundering, Article 218.1 of Monaco's Penal Code states that "any person who knowingly, in any manner whatsoever, for himself or for another person, acquires movable or real assets by directly or indirectly using assets or funds of unlawful origin or knowingly possesses or uses such assets", and "any person who knowingly assists any transaction to transfer, invest, conceal or convert assets or funds of unlawful origin" is liable to imprisonment for five to ten years.
Under Article 218.1, paragraphs 2 and 3, any person who attempts to commit the abovementioned offences or conspires with others with a view to doing so is liable to the same penalty.
The offences referred to at Article 218 of Monaco's Penal Code are constituted even if the offence from which the laundered funds derive was committed in another country, provided that it is a criminal offence there.
Attempt, conspiracy or complicity with a view to committing the abovementioned offences are also punishable under Article 218.1 of Monaco's Penal Code.
If the perpetrator of the money-laundering offence acts as a member of a criminal organisation, takes part in other international organised criminal activities, occupies a public office that helps him to commit the offence, takes part in other unlawful activities facilitated by perpetration of the offence, involves minors or has been convicted of a money-laundering offence by a foreign court, that is deemed to constitute an aggravating circumstance in Monegasque law and is punishable by a heavier sentence (Article 218.2).
Article 219 provides for the confiscation of assets and funds of unlawful origin and sets out the conditions of confiscation.

The word "Kowingly" is difficullt to prove for prosecuting authorities. Professionals may deliberately not ask questions as explained in a study from the United Nations that is still up to date in the issues that are addressed :
"Many lawyers, accountants and bankers are (often unselfconsciously) adept at not asking questions that would require them to refuse business or even to report their clients or potential clients to the authorities. But a major component of the motivation for crime is also the expected probability and scale of reward: the reverse side of this is the expectation (if contemplated) of prevention and/or salient punishment. Any form of crime for economic gain can have its relative attractiveness rating altered significantly by changes in detection and sanction levels both for it and for other crimes such as narcotics sales." (See study "Financial havens, banking secrecy and money laundering", Double issue 34 and 35 of the Crime Prevention and Criminal Justice Newsletter, Issue 8 of the UNDCP Technical Series)